The Economist in Chief

How much credit does Bill Clinton deserve?

Four years ago, at a national conference of economists, I couldn't get anyone on the Left or Right to say one good thing about Bill Clinton. The right-leaning crowd griped that Clinton had not cut taxes to spur more growth and investment. The left-leaners saw Clinton as a popular compromiser, unwilling to spend his political capital. (He was, remember, the child of an alcoholic, ready to do anything to be liked.) Later, the common wisdom was that the president deserved little credit for the thriving economy. Reagan got it going with tax cuts and wild spending, the technology sector kicked it into high gear, and Clinton coasted through a long boom that required little of him.

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How the tune has changed. Today, in talking to veterans of the Carter, Reagan, Bush, and Clinton administrations, you can already hear wistful tones for a president who turned out to be an unusually effective Economist in Chief. Looking over eight years of his economic stewardship, those officials and others say that several lessons emerge that ought to be studied by his successors.

1. Clinton involved himself. His ability to absorb information is well-known. Yet just how quick a study he is astonished even members of his staff--and kept them to a high standard of analysis. Harvard professor Jeffrey Frankel is one of the world's top experts on international finance and currency. Frankel worked in the Reagan administration as a senior economist and also served for two years on Clinton's Council of Economic Advisers. "Reagan wasn't interested at all in economic statistics," Frankel says with a touch of hyperbole. "He looked at one number a year, the gross domestic product, and even then didn't look too carefully." Clinton, by contrast, wanted to see and understand all the significant numbers that passed through the White House. For his staff, that meant preparing up to twenty reports a month on various economic statistics. In one such report, on poverty, Frankel digested the complex matrix of demographic and economic data and sent it to the Oval Office. "An hour later," Frankel says, "he knew every item in the memo better than I did, and I wrote the thing."

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2. Clinton unified the executive branch on economic policy. Robert Rubin, who joined the administration after having led Goldman Sachs, encouraged Clinton in his 1992 campaign promise to create the National Economic Council and became its first chief. The NEC was designed to harmonize national economic affairs on the model of the National Security Council. Economic policy reaches into every corner of the executive branch, from the Department of the Interior to the Office of the U.S. Trade Representative. "The Bush administration had the Economic Policy Council, a Cabinet-level group with a small staff and limited resources," says Richard Schmalensee, a member of former president Bush's Council of Economic Advisers from 1989 to 1991. In contrast, "Clinton made the National Economic Council important, with a head and lots of staff, and made it function more efficiently."

Clinton himself considers the centralization of economic policy a significant part of his legacy. "I believe that no future president will be able to have a White House that doesn't have a National Economic Council that coordinates all the various parts of the government to deal with economics," Clinton told Esquire writer Michael Paterniti. "It is something that, unbelievably, had never really been done in a disciplined way before."

3. The economic team was encouraged to act decisively. Rubin confronted the Mexican debt crisis in 1995, early in his term as Treasury secretary. At the time of the $20 billion bailout, the Clinton administration had few public backers but plenty of critics charging it had caved in to Wall Street interests. Mexico's economy righted, and the country repaid the U.S. loans early. Likewise the administration moved decisively and creatively on the so-called Asian contagions and the Russian debt crisis while Congress hemmed and hawed.

At a recent ceremony honoring Rubin, Clinton recalled the embattled political atmosphere confronting them in '95: "In comes Rubin with this, you know, 'Gee, shucks, golly . . . I just made a gazillion dollars on Wall Street, and you were some governor of a small southern state.' And [Rubin said], 'I mean, so what if [Congress] is 81--15 against us? Every now and then, you've just got to step up.'"

4. "One measure of presidential success with the economy is how well the administration maintains stability, by keeping inflation low and warding off recession," argues Charles Schultze, Jimmy Carter's CEA chairman, now at the Brookings Institution. Schultze believes that most of those cards now fall to the Federal Reserve. Clinton, however, made the choice of giving the Federal Reserve, and not incidentally Alan Greenspan, a more unfettered role than in the past. That, too, took discipline atypical of the executive suite. Presidents before Clinton had used their bully pulpit to pressure the Fed on interest rates. Some succeeded in politicizing the Fed's decisions but also destabilized credit markets by complaining. Clinton has had a strict policy against interfering with the Fed, including a rigid stand against anyone in the administration uttering even a peep about the Fed's business. New members of the administration were drilled on it, and violators were scolded.

5. Clinton's team established clear long-term goals. The president early on concluded, or was persuaded, that he had to make the economy more governable by reining in budget deficits and government debt, both key to driving down U. S. interest rates. And with interest rates lower and less volatile, the Fed could have more luck adjusting the economy should it need stoking or cooling.

Clinton's deficit-reducing budget didn't sit well with Republicans. By the time he took office, government debt had climbed to $4 trillion. The GOP was convinced that the U. S. could ride red ink out of recession and voted unanimously against Clinton's balancing act. Bill Gale, a member of George Bush's Council of Economic Advisers, gives Clinton credit for standing up to the tax cutters. "That's exactly the situation where you look for someone to make the right decision in the face of political cost," Gale says.

Persuading Democrats wasn't much easier; many were still vying for the social-spending programs that Clinton had campaigned for. Clinton earned his budget, but the political costs were high. Congress swung Republican. Arguably, one reason for all this was that Clinton had a clearer vision of how the economy and the budget would play out over time than did his party, the public, and even his own staff. Frankel recalls that Clinton, for instance, often touted to a skeptical corps of administration economists the power of the new economy to create jobs and growth.

Bob Woodward, whose new book, Maestro, delves into the president's relationship with Greenspan, sees Clinton as unusually able to take a long view. "Clinton is receptive to economic arguments about indirect forces," Woodward says of Clinton's attack on budget deficits and high interest rates. "Most politicians like direct effects from direct forces that they can see pretty immediately. Part of Clinton is an intellectual, and he's comfortable with the notion that doing something in 1993 or 1994 will pay off in 1996."

Clinton earned even less support from his party on trade. The Democrats were as divided on NAFTA as Clinton was single-mindedly in favor of it; they heard the giant sucking sound Ross Perot predicted. "I give him enormous credit on trade," says Schmalensee, now dean of MIT's Sloan School of Management. "In the congressional votes, Clinton had more Republicans on his side than Democrats. It is not easy to walk away from your base. Those were the best moments of his presidency."

6. Clinton knew how to sell his goals. On economics, Schmalensee does not see Clinton as a poll-driven opportunist but as a persuader. Clinton sold welfare reform whereas Bush could not. "Bush was an economics major at Yale," he points out, "yet Clinton is a better communicator."

No one will ever be able to tell exactly how much of the prosperity of the Clinton years was due to Clinton's policies. Certainly he was lucky to have Greenspan at the helm of the Federal Reserve. Yet as economic steward, Clinton will be hard to top. In his new book, Woodward describes how Greenspan found Clinton the only president he could respect--or even like--as a partner on the economy. The reason may be that Clinton respects the economy. When it came to forging policy, he put good economics ahead of politics. Sometimes he did it at tremendous risk, but just look at the rewards.